With investors neatly divided about the possibility the Federal Reserve will raise interest rates in December, the U.S. jobs report on Friday could affect both market prices and volatility.
Three data points in the October report warrant particularly close attention:
The pace of monthly job creation slowed unexpectedly in September, to 142,000, well below the 200,000 forecast in a Bloomberg survey of economists. In combination with equally surprising negative revisions to previous months, that brought the monthly average for 2015 to 198,000, compared with 260,000 for 2014.
It is natural for the pace of monthly job creation to slow over time — not least because the unemployment rate has been falling sharply and now stands at 5.1 percent. But it would be worrisome if the slowdown continued at the same pace as in September for many more months, which would increase questions about the underlying health of the U.S. economy, including the extent of the remaining slack in the labor market. That outcome also could force the Fed to consider difficult and uncertain trade-offs between cyclical and structural forces in its delicate December decision.
At the other extreme, an increase in monthly job creation to the 180,000-200,000 level would tempt the Fed to hike rates for the first time in almost 10 years when its policy-making committee convenes next month; especially if the acceleration was accompanied by favorable revisions to prior months.